Before preparing any financial statements for a Public Health Center, we need to review the financial reporting requirements for governmental and nonprofit organizations. It is understood that there is a governing authority for regulating the financial reporting on this specific situation. It should be taken into focus and consideration the quality of nonprofit organization financial reporting. Nonprofit and governmental entities' financial reporting requirements, objective functions, and governance mechanisms are different from those of for-profit firms.
The Internal Revenue Service Form 990.2 details the guidelines in preparing the financial statements of governmental organizations. A corresponding analysis of the financial statements is also provided as well as content of expenditures, revenues, and balance sheet, and more than enough bits of details pertaining to the very objective of charity and its undertakings.
What determine the form and content of the 990 and stipulates the needed accounting rules? It is the IRS regulations. Why is it so? So that IRS accounting procedures would reflect Generally Accepted Accounting Principles.
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As a requirement, all nonprofit organizations exceeding $25,000 revenue must file the 990 yearly. As congress so concurred, the very goal of IRS 990 is to make public the performance, and evaluation thereof, of non-profits. Hence, any parties can get through the IRS publicly available nonprofit financial data or documents (spelled in Joint Committee on Taxation 2000). To ensure and gear carefully the wide dissemination of 990 information, the IRS Statistics of Income (SOI) division sponsors the Urban Institute to collect and make freely available 990 data for virtually all nonprofitsââ‚¬Â (Yetman and Yetman, 2004).
Subsequently, nonprofits do not have investors in the traditional sense, in some cases donors act as investors in that they provide funds in exchange and in lieu for some measure of non-wealth type utility. In fact some distinctions of donors are handed in through contractual authority to oversee the existing nonprofit recipients within a specific organization standards.
The Governing Authority for Regulating Financial Reporting of both Governmental and Non-Profit Organization
ââ‚¬Å“The Internal Revenue Service is the absolute and basic federal organization spearheading the overseeing the financial reporting activities of nonprofit organizations. Both the legal governance metric (LEGAL) and the reporting governance metric (REPORT) vary across states but do not vary across nonprofits within a state, nor do they vary across time (because they are based on current laws). Because of this, we restrict all analysis using LEGAL and REPORT to a single year. Another source of nonprofit regulation arises from the use of a Certified Public Accountant (CPA) to prepare the IRS 990. Many nonprofits have outside CPAs prepare their IRS Form 990, while others prepare the forms in-house. IRS Circular 230 governs the duties of external CPAs in preparing IRS forms, and failure to follow those guidelines can result in suspension to practice and possible civil or criminal penaltiesââ‚¬Â (Yetman and Yetman, 2004).
Because nonprofits do not have access to traditional capital (stock) markets, debt financing through municipal bonds is one way that nonprofits can acquire large amounts of funds for capital projects. Technically nonprofits do not issue municipal bonds directly, but rather receive the proceeds of bond offerings sponsored by various state and city municipalities. Although the issuance is conducted through under the auspices of a governmental agency, the ultimate liability. Furthermore, the issuing municipal bonds subjects nonprofits to intensive financial reporting oversight from several sources. The Securities and Exchange Commission enforces the provisions of the Securities and Exchange Act of 1934 rule 15c2-12, which requires that before issuance the firm must file a "final official statement," which is a comprehensive set of documents prepared by the issuer containing the terms of the issue and extensive financial and operating disclosures. The SEC also enforces the annual reporting requirements of rule 15c2-12, which mandates that all municipal bond issuers file annual financial and operating reports according to the governing rules created by the Municipal Securities Rulemaking Board, which was established in 1975 by Congress. The Board's purpose is to set rules and standard to regulate securities of firms and banks involving themselves in underwriting, selling, and purchasing municipal securities which is overseen by the SEC. The Board, participated by members from the different citiesââ‚¬â„¢ securities leader community and the identified public, articulates rules and standards for all existing municipal securities personnel leading for setting bonds resides with the nonprofit (Yetman, 2004 and other authors).
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Yetman and Yetman (2004) anchoring discussions on Schipper and Vincent concepts specifically articulated the existing elements concerning the content of reporting as what the Congressional reports suggest that the 13 intent of the form 990 is to provide the public with the necessary information to evaluate the performance of a nonprofit (Joint Committee on Taxation 2000), and the Financial Accounting Standards Board (FASB) espouses a similar intent for the financial statements of both for-profit and nonprofit organizations (Concepts Statement No. 1 and 5, FASB 1978, para. 34 et. Seq.). The standards applied by both of these regulators imply a decision usefulness context to financial reporting for both the IRS 990 and nonprofit financial statements. The absolute concern focusing government financial reports and documentation nowadays is to portray legal compliance, covering both restricted or hidden asset and allocation accountability and the genuine outcome of the allocation process determining how financial resources be made available (cash inflows of expected available finances) to fund and provide payments for the existing activities of the government ( the cash outflows of expected available finances) for such span of time. The chartering of framework of finances and anchoring of identified accumulated accounting are fenced basically in an endeavor to show a logical and rational suiting to governmental available fund with the profits and other financial accumulated funds to pay for necessary cost; such as, that the governmental fund balance sheet reports of all existing and operating fund assets, financial credit and assets
claims on real operating assets and significant data of liabilities which are due for payment in the set period based on the part of asset finances which can be used for the payment of identified liabilities; the operating statement operating statement
which basically shows even the available supplemental cost resources ; and expenditures for materials and supplies and prepaid items are permitted to be reported as cost either during the time of purchased or during the time used (Gale Cengage Learning, 2010).
Thus, financial reporting preparation by state and local governments is vital in bracing and considering social, environmental, political, economic decision-making and in the genuine assessment of accountability. Moreover, the governing authority for regulating financial reporting of both non-profit and governmental organizations exists to monitor, evaluate, and account the on-going status or condition of such organization under certain financial circumstances considering elements such as, the actual financial output with the legally adopted budget, the financial circumstances and conditions' output of operations, the compliance of existing operation with finance-laws, rules, and regulations, and the evaluation of efficiency and effectiveness.
Financial reporting is definitely essential yet crucial. Nobody can simply play with accountability with its corresponding obligations and responsibility showing what's really happening and what's really needed and how the expenses and financial working elements inside the organization roll their sheets. Thus, it is expected organization has to manage financial elements within the cash flow of the evolving operation in careful emphasis and implementation which should be manifesting accordingly to certain financial controls, and governing state laws and regulations understanding legal procedures and generate financial strategic plan to ensure financial condition's security and integrity within the operation of the organization itself. Thus, the greatest challenge is how skillful the organization is in managing its cash flow without sacrificing to meet and achieve the organization's set goals and objectives.
Anonymous, Gale Cengage Learning (2010). Modified Accrual: Decision Useful &
Accountability Centered. Web. Retrieved 12 Oct., 2010 from
McNamara, Carter. Basic Guide to Non-Profit Financial Management. Retrieved 12 Oct.,
2010, from http://managementhelp.org/finance/np_fnce/np_fnce.htm.
Yetman, Michelle H. & Yetman, Robert J. (2004). The Effects of Governance on the
Financial Reporting Quality of Non-Profit Organizations. Web. Retrieved 12 Oct.,